Wednesday, June 26, 2019

The PLCB. A failure of an idea and the beginning of a fiefdom.

Sometime in December of 1933, then Pennsylvania Governor Gifford Pinchot sat down to write an editorial piece for the Rotarian magazine [you can read it, starting in page 12*]. He laid out his reasons for "The Pennsylvania Plan," his reasons why he felt that the government had to restrict alcohol for the citizens, because they couldn't control themselves. Let's look at the points he made in The Pennsylvania Plan, and see if Pennsylvania needed them then...and if we have any need of them now.

Pinchot said that Pennsylvania's liquor control legislation is dependent on five cardinal points.

  1. The saloon must not be allowed to come back.
  2. Liquor must be kept entirely out of Politics.
  3. Judges must not be forced into Liquor politics.
  4. Liquor must not be sold without restraint.
  5. Bootlegging must be made unprofitable.

Ardent environmentalist; ardent prohibitionist
After a quick look, you might conclude that all of his points have failed except #4. (We do our own bootlegging these days, thanks to the big liquor stores on the New Jersey, Delaware, and Maryland borders.) However, during the 85 years since Repeal, the meaning of the language in some of the points has changed.

Take point #1: saloons pre-Prohibition were in a large part controlled by the brewers. Prices were kept low, so demand was high. There were enticements like free food or snacks for those buying beer, which is why you see strangely detailed happy hour laws about how much food can be given away, and what kind. Bars were "tied" to the brewer that backed them; the only way you could get a Miller instead of a Bud, for instance, was to go to another bar. The corruption this caused, both in business and in politics from the free-flowing graft money produced, was one of the big drivers for Prohibition. 

That all changed with the three tier system in place in Pennsylvania (and most of the United States) today. That created three defined "tiers:" producer/brewer, wholesaler, and retailer, and forbid owners of one tier from owning businesses in the other two. No "tied houses." So did the saloon come back? Yes, but not in the same way, and that hasn't been all bad for the consumer. We'll call this point a draw.

In point #2, Pinchot was talking about patronage, the "spoils system," in which state jobs were handed out as political favors. He's already planning the huge jobs program of the State Store System of Stores. Point #2 meant that employees would be selected based on skills testing instead of loyalty testing; who they knew and the favors they could do. This was mostly true for the rank and file store workers, not so much for the managers, and not at all for the Board who have all been political hacks, cronies, and lawyerly hangers-on since day one.

He also thought that this new system would keep politicians from buying votes with booze, and thus fall under the control of distilleries and brewers. Did that work? Hard to say, because how people drank changed during the Depression. More drank at home after Repeal, because they could buy at a local store instead of having to go out to a speakeasy or club. This all changed again once the stores were unionized. Now the money flowed from union coffers into politician's pockets to buy votes to keep this archaic system alive. Although the jobs are still subject to civil service rules -- despite recent efforts to change this, under the guise of "improvement" -- overall this has failed.

Money, money, money, moooooney...
Point #3 is keeping the dollars, booze and votes away from judges and their decisions. Now we have judges working for the the PLCB...well, mostly 'working.'  I wonder what Gifford would say about that. This has worked, but largely because judges working on booze have been ring-fenced, as the British say.

Point #4 was probably true for the first 70 years of the State Store System of Stores -- ah, fond memories of the completely customer-unfriendly counter stores! -- but no longer. When the board that was put in place to control drinking is now advertising, having sales, sponsoring fests of various kinds, even trying to sell booze by robot! -- you can say that the restraint is limited at best.

Point 5 is pretty much irrelevant. As we said, bootlegging went from criminal enterprise to an everyday crime cheerfully "committed" by private citizens. Governor Pinchot thought that the state would be able to sell alcohol for less than the bootleggers, and they mostly did. But the power of the police-enforced monopoly and pure greed kept them from selling wine and spirits for less than the border states, which made them complicit in making criminals of everyday citizens.

Governor Pinchot was a leader in the Dry movement and was a teetotaler himself.  He really thought that his plan would have "support of the vast majority of the citizens of Pennsylvania."  But he never actually let the people decide, and as we all know, there has never been a single scientific poll that showed the citizens to be in favor of the State Store System of Stores.

Looking back to what was envisioned by Pinchot, you can see how corrupt the plan became over time. Millions of dollars were " be made available to school districts to help schools that were in danger of being closed." Even if we sucked out every penny possible from the PLCB now, it would only be about $90 for every taxpayer** this year. That's certainly not a rate the PLCB could keep up, and not really enough to notice in my almost $5,000 tax bill. Pinchot also suggested that if an item wasn't available the system "would have to get it." Still failing at that one 85 years later. And don't forget: there were THREE TIMES as many licenses available back then as now. Where did we go so wrong, Gifford? A commonwealth turns its thirsty eyes to you.

Unfortunately, not everything he proposed went...wrong. The Governor said that "Whisky will be sold by civil service employees with exactly the same amount of salesmanship as is displayed by an automatic postage stamp vending machine." Sure enough, that is exactly what we have in almost every transaction! He also said that there will be no artificial stimulation of the demand for liquor. No PLCB sponsoring a flower show trying to get women to drink, no staying open longer for hunting season, no bottle signings by third rate celebrities.

As a naturalist, Gifford Pinchot was probably second only to Teddy Roosevelt in public service. (He was the first professional forester in America.) His main fault was that he never actually wanted to know what the citizens thought of his Pennsylvania Plan, because he thought he knew what was best for the masses.

And that is the thing about the PLCB and the Almighty Liquor Code that has changed the least.

*If you get the chance, read the "Regulated Licenses, Retail Plan" by Frank J. Loesch on page 14.

** 10.1 M adults, 68.6% are homeowners, ~90% of them pay some property tax

Thursday, June 20, 2019

Revisiting some numbers that you won't see the PLCB publish

I first posted Numbers, Numbers, Numbers (some State Store numbers that are always missing in the PLCB's annual report) three years ago. It might be good to have a second look to see if there was any improvement at the PLCB.  The original findings are (in parentheses).

1) The average amount of non-tax revenue returned to the state per unit (single bottle or box) of wine or liquor - $1.25 (73 cents) Beware: this is based on the so-called "profit" turned in to the General Fund, which has little to do with actual profit. It's simply the amount asked for by the administration. We know that reserves were dipped into for 2018, so this number is skewed even more than it normally would be.

2) Not counting the actual cost of the item, what the PLCB spends to put one item on the shelf - $2.91 ($3.06)

3) What PA spends to put an item on the shelf, including the average cost of the item - $10.78 ($11.40)

4) What it costs with taxes included to put one average item on the shelf - $14.48 ($15.21)
Note: While it looks like items 2,3, and 4 are an improvement...this is due to the huge numbers around just 3 items: Fireball 50 ml (+750,000 unitls) and Tito's 50 ml (+175,000 units) and Tito's liter (+380,000 units). When you increase mini sales by over 900,000 units, it skews the average cost and tax per unit. 
5) Average real estate rental cost per store (2018) - $1663 a week ($1432)

6) Industry average profit margin 8.1%; PLCB 2018 profit margin 8.9% (6%) The majority of this increase is due to the auction of the "Zombie" liquor licenses, not because of actual retail sales.

7) PLCB effective markup, not counting any taxes - 46.7% (45.36%)
This is because of variable pricing. Now that almost all items fall under that, expect this to rise even more next year.

8) State and federal government workers' average benefits as percentage of salary - 36.4%.
PLCB benefits as percentage of salary - 85-104% (as stated by Board members during the Appropriations hearings in the Senate).

9) Percent of sales actually checked for proof of age - Unknown. 
The PLCB did not include any information about carding in this year's summary. It is still probably under 2% as it has been in years past.

10) Retail Wine Specialists as a percentage of PLCB workers: 2.2%  (1.7%) - Only a gain of 20 in three years. Retail Wine Specialist as a percentage of Total Wine store employees - ~20%


1. - $185M returned to General Fund plus $30.5M for BLCE plus $5.5M for Alcohol Awareness programs plus $2.5M for Drug & Alcohol programs divided by 178.9 million unit sales. We were told "Modernization" will increase profits by $180M. Is anyone surprised that we're not seeing anything close to that? (Keep in mind that the $185 million is a very flexible number, mostly representing what the Legislature requires from the PLCB, whether it's actually "profit" or not.)
2. - Operating expenses (not counting the cost of wine and spirits) of $520M, divided by units sold. The lower this number, the more efficient the organization is.
3. - Operating Expenses plus Cost Of Goods Sold (COGS) = $1.928B divided by units sold 178.9M.
4. - Gross sales ($2.59B) divided by total units sold. $3.47 in tax for every bottle or box sold is the average of sales and Johnstown Flood Tax; more expensive bottles can be much more.
5. - Rental expense for all operating leases $52.2M divided by 604 stores. Of course, this cost will increase as the PLCB tries to move into higher traffic areas.
6. - IBISWorld, May 2013, Operating Income divided by Sales Net of Taxes. With increased pension costs, workers comp, salary, and benefits increasing, this won't improve any time soon.
7. - COGS divided by gross profit. This fat markup of 46.7% still isn't going to be enough to cover increasing operating costs as the PLCB had to go into reserves again to pay the $185M requested by Gov. Wolf
8. - US Dept Of Labor - Bureau of Labor Statistics, 2016 PA Senate Appropriations hearing.
9. - No information about carding is mentioned in this year's documents. You have slightly better than 98% chance of not being carded (compared to a 0.0% chance at private stores like Wegmans), and since the State Stores are never checked by police for underage effective are they?
10. - 4999 (2/15/2019) divided by 111 (www.pennwatch) There appear to be no Spirits Specialists in the PLCB.
11. - Over 5000 employees and 800+ Wine Specialists (Total Wine wiki ). The PLCB has ONE retail wine specialist for every 5.4 stores, Total has SIX at each store.

Monday, June 3, 2019

Just Imagine...

Imagine that the Commonwealth controlled meat sales like they do with wine. Crazy, sure, but the State Store System of Stores doesn't make sense either. Just go with it. Along with the butchers who came in every day and cut the steaks and chops and ground the burger, there was this one guy, The Meat Master, who got to select special meats from all over that you couldn't normally find in Pennsylvania, mainly because the Meat Control Board didn't know what they were. You know, like the guy at the PLCB who picks the Chairman's Selections.

This Meat Master, he must really know his meat, right? He should be able to tell Choice from Wagyu with just one chew, have a couple of years as a certified master butcher, so he knows first hand all the different cuts of meat available: beef, pork, poultry, game, sausage and charcuterie. He's the Meat Master, you'd want to be sure he knows what he's doing so that the citizens of Pennsylvania get the absolute best meat possible.

Yeah, except the real Meat Master has only read about meat. He's eaten lots of burgers and pork chops, and even had some fine hand-cut Delmonico steaks. But he never actually had to prove his ability by being able to differentiate different cuts and grades of meat by taste. On top of that, his certification test to identify different cuts was all home study and he never actually did any work in a kitchen or butcher shop. He has the lowest possible certification as a butcher, but he's never so much as boned a chicken.

You've probably guessed; this is about wines at the the PLCB, not meat at the Meat Control Board. The new head of the Chairman's Selection, Josh Hull, is a Certified Specialist of Wine. It sounds pretty fancy, but what does it actually mean?  A CSW is the lowest certification provided by The Society Of Wine Educators (SWE), the bottom rung of one of the four main wine certification organizations. 

The CSW certification has no official class time required to sit for an exam. It is entirely an independent study program. After passing an exam, the credentials are appended to an individual’s name, which is appealing for those aiming to make themselves more marketable in the wine and spirits industry. It's...about one step above being a mail-order preacher. It is better than the in-house PLCB certification, but that ain't saying much.

If you think that this guy is the standard that the rest of the wine world is striving to achieve, that pretty much sums up what a lot of the problems are at the PLCB. Delusion seems to be at or near the top of the list. My waiter the last time I was in DC * had better credentials than the guy selecting Chairman's Selection wines. How do I know this? He had his pin on for completion of the introductory Sommeliers course.

For some of the top wine programs it takes years of study, multiple exams, hands on tasting, and having to prove your expertise. The Institute
of Masters of Wine "seeks to educate those on the leading edge of the wine world." That pretty much explains why there are none in the PLCB. We wouldn't want that for Pennsylvania would we?

The reality is that the Chairman's Selection Program often buys wine that didn't sell when faced with free market competition. Consumers - en masse - already decided that there are or were better wines available at those particular price points. 
That isn't to say they are bad wines, just not popular
What do you do when you have a product that doesn't sell?  You put it on sale, perhaps try to offer it in other places that wouldn't normally carry it like...The Dollar Store. Or Pennsylvania. If this stuff was so good, why didn't the super-duper wine selectors at the PLCB select it in the first place?

The PLCB should have hired an already highly certified and qualified person who could then train up their platoon of wine buyers and wine specialists past the "PLCB standards" to industry recognized standards, thereby improving the consumer experience. Remember us? The consumers? 

Pennsylvania is a dumping ground for wine the rest of the country didn't want. Shouldn't we at least have somebody who is the absolute best picking out the gems from the dregs?

*Bourbon Steak at the Four Seasons - highly recommended especially if somebody else is paying for it. BTW, they have 3 Sommeliers on staff, the PLCB has none.